Comparative Research On Civil Liability Of Directors And Management Of Limited Liability Companies Under Chinese And German Laws

The civil liability of directors and management forms an important part of company governance. Thedeficiency in Chinese law in this area leads to the problem that in the practice, numerous directors andmanagers are able to avoid legal consequence, even their wrongdoings causing severe losses to thecompany (in certain scenarios, even company bankruptcy), which produces negative effect to the thirdparties, e.g. shareholders and creditors, and even the development of the socialist market economy. Theconcept of the “limited liability company” was invented by the legislator of the German Reich in1892.After hundred year’s development, the German law contains relativelymodern structure on companygovernance, especially regarding the civil liability of the managing directors (in German“Gesch ftsführer”). This thesis intends to compare both legal systems on civil liability of directors andmanagement under German and Chinese law, and summarize the international experience relevant forreform of the Chinese law. This thesis employs the methods of MarxistMaterialist Dialectics, comparison,induction and deduction, interpretation of law, analysis and summarization, etc., to conduct systematiccomparison on civil liability of directors and management of limited liability companies in Germany andChina. The detailed similarity and difference in German and Chinese laws are compared, from the generalsituation of the legislation to the detailed obligations, from composition of the liability to claiming therights. The research reveals that both German and Chinese laws are similar to each other in major areas,however different to each other in detailed points, regarding civil liability of directors and management,especially regarding the legal status of directors and management, origin of power, the basic understanding of diligence and loyalty, composition of the liability, etc. The abovementioned phenomenon shall be causedby the reason that the Chinese legislation placed value on learning from foreign successful experience in itsown process. However, the difference is mainly caused by the different situation of both countries anddifferent maturity of the relevant systems, which shall be reflected by the difference in structuring certainsystems and legislation techniques. In the area of civil liability of directors and management of limitedliability company in China and Germany, this thesis intends to first depicts in details the legal origin,relevant laws and regulations, the legal status, the origin of powers of directors and management and thescope of authorization, so that the readers can have the first impression on the systems of both countries; inthe second step, the detailed comparison is conducted regarding obligation of loyalty and diligence of thedirectors and management in Germany and China vis-à-vis the company, the content and scope of liabilityof the directors and management vis-à-vis the shareholders and third parties, composition and manners ofthe liability, claiming the right and shareholder derivative action etc., and on this basis the relevant suggests,according to the thinking of “completing the systems”, are raised for improving the Chinese legislation. Inlight of civil liability of directors and management, the Chinese law shall learn the successful experiencefrom the German law, and define the nature of the civil liability of directors and management vis-à-vis thethird party, and produce its connection with the Tort Liability Law and other systems of civil andcommercial law. A systematic civil liability of directors and management shall be established, in order torestrict the directors and management from making use of their information advantage to harm thelegitimate right of the third party; certain reverse of burden of proof shall be established in light of evidence,namely, the directors and management shall bear the burden of proof that they have fulfilled the obligationof loyalty and diligence when carrying out their jobs. In light of the way to bear the civil liability, althoughit shall not be necessary to take the trouble to learn from the German law, the following system shall beestablished on a timely basis: in case that any resolution of board of directors violates again the legalregulations, the relevant directors, who are not exculpated, shall bear the liability proportionately; howeverin case of infringement on social insurance and taxation, and other public interests, we can learn from theGermany law and stipulate that the relevant directors shall bear the joint liability as exceptional case. In thearea of shareholder derivative action, it shall be established that the shareholders of the limited liabilitycompany shall reach a shareholder resolution (excluding the major shareholder, who could be biased due toits interests), and then take action on the directors and management; the shareholders shall also authorize arepresentative to represent the company, and raise the action in the name of the company, in order to guarantee the basic principles of modern companies and its development, namely the principle ofindependency of legal person and capital majority, and at the same time the basis of the legislation, namelyto protect the interest of the minority shareholders, is also considered.